Effects of Thin Capitalization on The Financial Performance of Multinational Companies in Nigeria
Before the Finance Act 2019, multinationals exploited the absence of thin capitalization rule in Nigeria, resulting in the government's loss of tax revenue. Thereby necessitating the examination of the effects of thin capitalization on the financial performance of multinational firms in Nigeria...
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| Format: | Article |
| Language: | English |
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Ferdowsi University of Mashhad
2023-05-01
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| Series: | Iranian Journal of Accounting, Auditing & Finance |
| Subjects: | |
| Online Access: | https://ijaaf.um.ac.ir/article_42949_7ad96cf36f7191666764aa73091b56e9.pdf |
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| author | Ifeoma Osamor Godwin Omoregbee Ayomide Olugbenga |
| author_facet | Ifeoma Osamor Godwin Omoregbee Ayomide Olugbenga |
| author_sort | Ifeoma Osamor |
| collection | DOAJ |
| description | Before the Finance Act 2019, multinationals exploited the absence of thin capitalization rule in Nigeria, resulting in the government's loss of tax revenue. Thereby necessitating the examination of the effects of thin capitalization on the financial performance of multinational firms in Nigeria. Secondary data was obtained from the annual reports of eight selected multinationals from 2014 to 2021. Thin capitalization was a proxy with financial leverage ratio, fixed-charge coverage ratio and debt ratio; financial performance was a proxy with return on asset, while the firm’s size was used as a control variable. Data were analyzed using descriptive statistics, cross-sectional dependence tests, serial correlation, normality tests and regression analyses. The findings revealed that financial leverage and debt ratio do not significantly affect ROA, while fixed-charge coverage ratio had an effect on ROA. The study, therefore, concluded that thin capitalization does not affect multinationals in Nigeria. Hence, Federal inland revenue was recommended to ensure that all multinationals comply with the Finance Act 2019 on the restriction of interest deductible from profit. |
| format | Article |
| id | doaj-art-adc4055fba1647158d7cc9dd0ce2f5e0 |
| institution | DOAJ |
| issn | 2717-4131 2588-6142 |
| language | English |
| publishDate | 2023-05-01 |
| publisher | Ferdowsi University of Mashhad |
| record_format | Article |
| series | Iranian Journal of Accounting, Auditing & Finance |
| spelling | doaj-art-adc4055fba1647158d7cc9dd0ce2f5e02025-08-20T02:39:18ZengFerdowsi University of MashhadIranian Journal of Accounting, Auditing & Finance2717-41312588-61422023-05-01729911010.22067/ijaaf.2023.42949.123342949Effects of Thin Capitalization on The Financial Performance of Multinational Companies in NigeriaIfeoma Osamor0Godwin Omoregbee1Ayomide Olugbenga2Department of Accounting, Lagos State University, Lagos, NigeriaDepartment of Accounting, Lagos State University, Lagos, NigeriaDepartment of Accounting. Lagos State University, Lagos, NigeriaBefore the Finance Act 2019, multinationals exploited the absence of thin capitalization rule in Nigeria, resulting in the government's loss of tax revenue. Thereby necessitating the examination of the effects of thin capitalization on the financial performance of multinational firms in Nigeria. Secondary data was obtained from the annual reports of eight selected multinationals from 2014 to 2021. Thin capitalization was a proxy with financial leverage ratio, fixed-charge coverage ratio and debt ratio; financial performance was a proxy with return on asset, while the firm’s size was used as a control variable. Data were analyzed using descriptive statistics, cross-sectional dependence tests, serial correlation, normality tests and regression analyses. The findings revealed that financial leverage and debt ratio do not significantly affect ROA, while fixed-charge coverage ratio had an effect on ROA. The study, therefore, concluded that thin capitalization does not affect multinationals in Nigeria. Hence, Federal inland revenue was recommended to ensure that all multinationals comply with the Finance Act 2019 on the restriction of interest deductible from profit.https://ijaaf.um.ac.ir/article_42949_7ad96cf36f7191666764aa73091b56e9.pdfleverage ratiofixed-charge coverage ratiodebt ratiomultinational firms |
| spellingShingle | Ifeoma Osamor Godwin Omoregbee Ayomide Olugbenga Effects of Thin Capitalization on The Financial Performance of Multinational Companies in Nigeria Iranian Journal of Accounting, Auditing & Finance leverage ratio fixed-charge coverage ratio debt ratio multinational firms |
| title | Effects of Thin Capitalization on The Financial Performance of Multinational Companies in Nigeria |
| title_full | Effects of Thin Capitalization on The Financial Performance of Multinational Companies in Nigeria |
| title_fullStr | Effects of Thin Capitalization on The Financial Performance of Multinational Companies in Nigeria |
| title_full_unstemmed | Effects of Thin Capitalization on The Financial Performance of Multinational Companies in Nigeria |
| title_short | Effects of Thin Capitalization on The Financial Performance of Multinational Companies in Nigeria |
| title_sort | effects of thin capitalization on the financial performance of multinational companies in nigeria |
| topic | leverage ratio fixed-charge coverage ratio debt ratio multinational firms |
| url | https://ijaaf.um.ac.ir/article_42949_7ad96cf36f7191666764aa73091b56e9.pdf |
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